Non-Profits – How to Record a PPP Loan and its Forgiveness

Did your -non-profit organization receive a Paycheck Protection Program (PPP) loan? Are you  wondering how to properly record it? The Small Business Administration (SBA) authorized forgivable loans to small businesses to pay their employees during COVID-19 as an incentive to keep employees employed during the pandemic.  The SBA forgives loans if certain conditions are met (funds were spent on payroll, rent, and utilities).

Your non-profit has two options for recording a PPP loan:

• Option 1 – If your organization was granted a PPP loan, expects to meet the PPP loan forgiveness criteria, and has concluded that the PPP loan represents a grant that is expected to be forgiven; it can account for the PPP loan as a conditional contribution.  Your organization should initially record the amount received as a refundable advance and reduce the advance as the conditions are met and record the corresponding revenue.  If all conditions have been met in the same year, no liability remains.  If the official forgiveness letter does not occur until the following year, the PPP loan must remain a liability on the Organization’s Form 990 until the liability is officially forgiven.  Thus, requiring a book to tax difference on your Form 990.
• Option 2 – If your organization prefers to record the PPP loan as a loan, the loan will remain on your Organization’s books until the official forgiveness letter is received.  At that time, your organization will record the loan forgiveness as revenue from the SBA.  This will also be the time that the revenue is recorded on your Organization’s Form 990 and corresponding entry on the Schedule B as a contribution from the SBA.

Based on the above options, your organization must disclose the following information on its financial statements:

• Option 1 – Disclose the accounting policy for the PPP loan as a refundable advance and conditional contribution and its corresponding recognition as conditions are met.  At the end of the year, disclose the remaining amount recorded as a refundable advance, if any.
• Option 2 – Add a footnote on the loan with the amount funded, 1% interest rate (same rate for all businesses receiving the loan), and date the loan is due.  Also add the date the loan was forgiven, if applicable.

It is up to your Organization to decide whether to record your PPP loan as a conditional contribution or a loan.  If you need assistance in requesting forgiveness, please give us a call and we can help! We have a Business Solutions Department that has assisted many organizations in requesting forgiveness.

For additional considerations, please reach out to T.J. Sheldon, Associate Director of the Assurance Team at Mahoney to be of help to you in any way.